Is it easier to share hardships than to share rewards?

Web3 is an industry adept at storytelling, yet those skilled in storytelling are not necessarily willing to honor their commitments.

A contributor known as "Crypto Fearless" recently posted an update stating that, since becoming a key opinion leader (KOL), they have received numerous "insider disclosures" from crypto asset project sponsors. Among the most egregious cases was one in which a project sponsor terminated core team members on the eve of its token generation event (TGE) and, citing such terminations as justification, cancelled all of their token options. The motives behind such maneuvers are not difficult to discern: first, to reduce selling pressure when the tokens enter circulation; second, simply to avoid honoring commitments. In other words, it amounts to clearing costs prior to listing.

As legal practitioners in the Web3 industry, Attorney Hong Lin is hardly surprised by such narratives. Over the past few years, we have observed too many Web3 projects undertaking "organizational restructuring" at critical junctures: laying off staff before a TGE, clawing back equity interests before listing, or even flatly denying that any incentive commitments ever existed.

Even more distressing is that some individuals did not sign employment contracts but rather so-called consulting agreements, under which project sponsors orally promised token allocations. When the time came for distribution, these individuals were merely told, "You are not on the allocation list." Even with emails, group chat records, and audio recordings as evidence, a notice stating that "the plan has been terminated" would effectively nullify all claims.

By comparison, employees of traditional Web2 companies can at least resort to labor arbitration and equity litigation to strive to protect their lawful rights and interests. However, the entities behind most Web3 projects are incorporated in jurisdictions such as the Cayman Islands, Singapore, or the British Virgin Islands (BVI). Departing "employees" seeking to litigate must first resolve the questions of "where to sue" and "whom to sue." The costs involved often exceed what rights-holders can bear.

In conversations with many Web3 founding teams, Attorney Hong Lin has identified a significant misconception:An overestimation of technical capabilities and an underestimation of the role of legal controls in user protection and risk management.

From incentive mechanisms to corporate governance, and from token allocation to control arrangements, many founders are accustomed to "just getting started," even believing that technical protocols can substitute for legal agreements and that DAO voting can represent formal contracts.

Such ambiguity and arbitrariness create substantial gray areas for breaches of contract. These issues often remain latent until the window for realizing benefits arrives. Once tokens begin circulating, market capitalization rises, and resources flow in, the situation becomes a tug-of-war over power and interests, rather than a continuation of joint entrepreneurship.

This practice of reneging on incentive commitments is not confined to small projects that disappear mid-way through their startup journey; even large platforms preparing for listing inevitably face internal pressures regarding employee incentives.

While we do not intend to speculate on individual cases, industry patterns suggest that once a company enters the listing phase, internal compliance restructuring, equity reshuffling, and the redefinition of stock options can easily become ambiguous zones affecting employee rights. In the absence of contractual safeguards, early contributions may be casually dismissed as part of "structural optimization."

This phenomenon is not isolated; rather, it represents a common "weakness" among Web3 startup teams. We previously conducted an in-depth analysis of similar cases in our article"Lessons from the YesCoin Controversy: Legal Risks Commonly Overlooked by 90% of Web3 Startup Teams and Lawyers’ Recommendations,"where we examined such scenarios in detail.

YesCoin, once a highly popular application within the TON ecosystem, ultimately escalated into a criminal case due to serious disputes between its two co-founders over project control, data access rights, and equity arrangements. In this case, one co-founder was taken away by the police for investigation on charges of "illegally obtaining data from computer information systems" after unilaterally revoking the team’s data access privileges and removing system access.

Although the matter was eventually resolved amicably, its root cause lay in the absence of a clear governance structure and legal agreements during the early stages of the venture, with the collaboration relying solely on "personal relationships" and "trust." Contradictions erupted once the project achieved success.

Decentralization does not equate to being unorganized,DAOnor does it mean operating without contracts.The absence of shareholders’ agreements among co-founders, the lack of vesting or fulfillment mechanisms for employee incentives, and the concentration of system control in the hands of individual technical staff led to conflicting claims and covert actions when it came time to distribute profits. This ultimately transformed technical disputes into legal risks and turned collaboration into mutual reporting to authorities.

If even the founders have not clarified their respective rights and responsibilities, what safeguards exist for the Tokens held by team members?

Therefore, whether in extreme cases like YesCoin or in situations involving the termination of employees prior to a Token Generation Event (TGE), these incidents reflect significant issues in Web3 entrepreneurship that warrant attention: In environments lacking formal contracts and governance systems, incentive mechanisms are highly susceptible to becoming empty promises, and founders are prone to abandoning their original intentions at the moment they monetize their power.

When our lawyers intervene in such disputes, the most common scenario involves employees located in China, projects operated overseas, and Tokens already listed on exchanges. At this stage, pursuing accountability becomes nearly impossible. Precisely because legal recourse is so difficult, an increasing number of project operators feel emboldened to "cancel incentives, dismiss personnel, and alter Token structures," treating breaches of law and contract as means of "organizational restructuring."

While such conduct may appear to reduce costs in the short term, it erodes the credit foundation of the entire industry in the long run. The development of Web3 already faces trust challenges from regulatory, financial, and social perspectives. If even the most basic internal incentive contracts frequently fail, the industry’s public credibility, ability to attract talent, and investment stability will be severely impacted.

What we wish to emphasize is not that “entrepreneurs must have a conscience,” but rather that Web3 projects must establish basic contractual structures and legal frameworks.Founders should execute clear equity agreements and governance provisions; employee incentive plans must feature well-defined vesting schedules and lock-up mechanisms; token allocations must carry legal enforceability, rather than relying solely on the project sponsor’s unilateral claim of “final right of interpretation.” No matter how much you trust your partners, you must let institutional safeguards provide a backstop; even if you are a native participant in the on-chain ecosystem, you must accept the legal realities of the off-chain world.

Entrepreneurship may involve sharing hardships, but if you fail to clearly articulate the rules for “sharing rewards” from the outset, do not expect others to honor sentimental bonds when market opportunities arise. In the blockchain world, the scarcest resource is neither technology nor capital, but trust that can be realized. Be an individual who honors commitments, and build a team that embeds those commitments into contracts and ensures their execution.

Perhaps this constitutes the most critical compliance pathway for commencing Web3 entrepreneurship.

 

Author of this Article

Liu Honglin, Founder of Mankun Law Firm. Member of the Young Lawyers Working Committee of the Shanghai Bar Association, Member of the Information Technology Working Committee of the Shanghai Bar Association, and Member of the Legal Technology Committee of the Shanghai Bar Association. Attorney Liu Honglin possesses ten years of experience in law and internet entrepreneurship, having previously served as Vice President of a legal technology company under Tencent’s strategic investment division and as Legal Manager for a private equity fund at a listed company. He specializes in proposing practical, implementable solutions for cases from the perspectives of business models and legal practice, thereby maximizing commercial benefits for clients.

 

About Mankun

Mankun Law Firm was established in 2015 and is a boutique law firm in China specializing in the new Web3.0 economy and deeply engaged in the blockchain industry. Members of the Mankun team possess unique and diverse industry backgrounds, hailing from renowned legal service institutions, state judicial organs, internet technology companies, crypto asset institutions, and blockchain industry think tanks.

Leveraging a profound understanding of the new economy, continuous attention to and research on policies and regulations, and extensive practical experience, the Mankun team excels in providing comprehensive legal services to new economy enterprises in sectors such as Web3.0, blockchain, AI, NFTs, digital collectibles, crypto funds, crypto payments, DeFi, real-world assets (RWA), and GameFi. These services include business structure design, project financing and investment, transaction planning, operational compliance, resolution of complex civil and commercial disputes, prevention and control of criminal risks, and criminal defense.

Mankun Law Firm is headquartered in Shanghai, with branch offices in Hong Kong (China), Silicon Valley (United States), Shenzhen, Hangzhou, Zhengzhou, Chengdu, and other locations. To meet the global compliance development needs of Web3.0 industry clients, Mankun has established local offices in major global crypto-financial cities and selected professional local blockchain service partners, providing clients with professional legal and compliance services characterized by global breadth and Chinese depth.